MANAGEMENT ACCOUNTING - Solutions Manual
CHAPTER 15 FUNCTIONAL AND ACTIVITY-BASED BUDGETING
I.
Questions
1. No. No. Plan Planni ning ng and and cont contro roll are are diff differ eren ent, t, alth althou ough gh rela relate ted, d, conc concep epts ts.. Planning involves developing objectives and formulating steps to achieve those those object objective ives. s. Control, Control, by contrast, contrast, involv involves es the means means by which which management ensures that the objectives set down at the planning stage are attained. 2. udge udgets ts have have a dual dual purpo purpose, se, for planni planning ng and and for for foll follow owin ing g up the the implementation of the plan. !he great benefits from budgeting lie in the "uic# investigation of deviations and in the subse"uent corrective action. udgets should not be prepared in the first place if they are ignored, buried in files, or improperly improperly interpreted. interpreted. $. !wo majo majorr feat featur ures es of a budg budget etary ary progr program am are are %1& %1& the the acco accoun unti ting ng techni"ues which developed it and %2& the human factors which administer it. !he human factors are far more important. !he success of a budgetary system depends upon its acceptance by the company members who are affected affected by the budget. 'ithout 'ithout a thoroughly educated educated and cooperative cooperative management group at all levels of responsibility, budgets are a drain on the funds of the business and are a hindrance instead of help to efficient operations. (. )anufactur )anufacturing ing overh overhead ead costs costs are budget budgeted ed at normal normal operating operating capacity capacity,, and the costs are applied to the products using a predetermined rate. !he predetermin predetermined ed rate is computed computed by dividing dividing a factor that can be identified identified with both the products and the overhead into the overhead budgeted at the normal operating capacity. udgets may also be used in costing products in a standard cost accounting system. *. !he product production ion divi divisio sion n operates operates to produce produce the the products products that are sold. Produ Product ctio ion n and and sale saless must must be coor coordi dina nate ted. d. Prod Produc ucts ts must must be manufactured so that they will be available to meet sales delivery dates. +ctivity of the production division will depend upon the sales that can be made. made. +lso, +lso, the sales divisio division n is limite limited d by the capabilit capabilities ies of the production production department department in manufacturing manufacturing products. uccessful operations operations depend upon a coordination of sales and production. 15-1
Chapter 15 Functional and Activity-Based Budgeting
-. abor hour hour re"uired re"uired for for productio production n can be translate translated d into into labor labor pesos by multiplying the number of hours budgeted by the appropriate labor rates. !he rates to be used will will depend depend upon the rates establis establishe hed d for job classifications and the policy with respect to premium pay for overtime or shift differences. /. + long long0ran 0range ge plan for the ac"uis ac"uisitio ition n of plant assets assets is bro#en dow down n and entered in the current budget as the plan unfolds. !he portion of the plan which is to be eecuted in the net year is included in the budget for that year. . + bud budge gett perio period d is not lim limited ited to any any partic particul ular ar unit unit of tim time. +t a minim minimum um,, a budget budget should should cover cover at least least one operatin operating g cycle. cycle. 3or eample, a budget should not cover a period when purchasing activity is high and omit the period when sales volume and cash collection are relatively relatively high. high. !he budget period period should encompa encompass ss the entire cycle etending from the purchasing operation to the subse"uent sale of the products and the reali4ation of the sales in cash. 5rdinarily 5rdinarily, a budget of operations is prepared for a year which in turn is divided into "uarters and month months. s. ong0t ong0term erm budgets, budgets, such as budgets budgets for projects projects or capital capital investments, may etend five to ten years or more into the future. 6. + rolli rolling ng budget budget or a progress progressive ive budge budgett or someti sometime mess called called continu continuous ous budget, budget, is a budget which which is prepared throughout the year. year. +s one month month elapses, a budget is prepared for one more more month month in the the future. +t any one time for eample, the company will have a budget for one year into the future, when 7uly of one year is over, a budget for the following 7uly will be added at the other end of the budget. !his process of adding a new month as a month epires is continuous. 18. 9arianc ariances es that are reveale revealed d by a comparis comparison on of actual results with a budget are investigate investigated d if it appears that an investigati investigation on is warranted. !he investigation may show that stricter control measures are needed or that some wea#nes wea#nesses ses in the operation operation should should be corrected. corrected. It may also reveal that the budget plan should be revised. !he comparison is one step in the control and direction of business operations. 11. + comparison comparison of actual results with a budget can contribute contribute information information that can be applied in the preparation of better budgets in the future. ubse"uent investigation of variances provides management with a better #now #nowle ledg dgee of opera operati tion ons. s. !his !his #now #nowle ledg dgee can be appli applied ed in the the preparation of more more realistic realistic budgets budgets for subse"uent subse"uent fiscal fiscal periods. periods. 12. + self0im self0impose posed d budget is one in which persons persons with responsibili responsibility ty over cost control prepare their own budgets, i.e., the budget is not imposed from above. !he major major advantages are: %1& the views and judgme judgments nts of 15-2
Functional and Activity-Based Budgeting Chapter 15
persons from all levels of an organi4ation are represented in the final budget document; %2& budget estimates generally are more accurate and reliable, since they are prepared by those who are closest to the problems; %$& managers generally are more motivated to meet budgets which they have participated in setting; %(& self0imposed budgets reduce the amount of upward ero0based budgeting re"uires that managers start at 4ero levels every year and justify all costs as if all programs were being proposed for the first time. In traditional budgeting, by contrast, budget data are usually generated on an incremental basis, with last year?s budget being the starting point. 1*. + budget is a detailed "uantitative plan for the ac"uisition and use of financial and other resources over a given time period. udgetary control involves the use of budgets to control the actual activities of a firm. 1-. 1. udgets communicate management?s plans throughout the organi4ation. 2. udgets force managers to thin# about and plan for the future. $. !he budgeting process provides a means of allocating resources to those parts of the organi4ation where they can be used most effectively. (. !he budgeting process can uncover potential bottlenec#s before they occur. *. udgets coordinate the activities of the entire organi4ation by integrating the plans of its various parts. udgeting helps to ensure that everyone in the organi4ation is pulling in the same direction. -. udgets define goals and objectives that can serve as benchmar#s for evaluating subse"uent performance. 1/. + master budget represents a summary of all of management?s plans and goals for the future, and outlines the way in which these plans are to be accomplished. !he master budget is composed of a number of smaller, specific budgets encompassing sales, production, raw materials, direct labor, manufacturing overhead, selling and administrative epenses, and
15-3
Chapter 15 Functional and Activity-Based Budgeting
inventories. !he master budget generally also contains a budgeted income statement, budgeted balance sheet, and cash budget. 1. !he flow of budgeting information moves in two directions@upward and downward. !he initial flow should be from the bottom of the organi4ation upward. Aach person having responsibility over revenues or costs should prepare the budget data against which his or her subse"uent performance will be measured. +s the budget data are communicated upward, higher0 level managers should review the budgets for consistency with the overall goals of the organi4ation and the plans of other units in the organi4ation. +ny issues should be resolved in discussions between the individuals who prepared the budgets and their managers. +ll levels of an organi4ation should participate in the budgeting process@ not just top management or the accounting department. Benerally, the lower levels will be more familiar with detailed, day0to0day operating data, and for this reason will have primary responsibility for developing the specifics in the budget. !op levels of management should have a better perspective concerning the company?s strategy. 16. udgeting can assist a company forecast its wor#force staffing needs through direct labor and other budgets. y careful planning through the budget process, a company can often smooth out its activities and avoid erratic hiring and laying off employees. II. Matching Type 1. 2. $. (. *.
C A 3 I
-. /. . 6. 18.
+ 7 D B
III. Exercises Exercises 1 Sche!ule o" Expecte! Cash Collections#
Requirement 1 July )ay sales: P($8,888 E 18F 7une sales:
P ($,888
15-$
August
September
Total P
($,888
Functional and Activity-Based Budgeting Chapter 15
P*(8,888 E /8F, 18F 7uly sales: P-88,888 E 28F, /8F, 18F +ugust sales: P688,888 E 28F, /8F eptember sales: P*88,888 E 28F !otal cash collections
$/,888
P*(,888
128,888
(28,888
P -8,888
-88,888
18,888
-$8,888
18,888
P-*(,888
188,888 P/68,888
188,888 P1,6*,888
P*(1,888
($2,888
Notice that even though sales pea# in +ugust, cash collections pea# in eptember. !his occurs because the bul# of the company?s customers pay in the month following sale. !he lag in collections that this creates is even more pronounced in some companies. Indeed, it is not unusual for a company to have the least cash available in the months when sales are greatest. Requirement 2 +ccounts receivable at eptember $8: P 68,888 3rom +ugust sales: P688,888 E 18F....................................................................... 3rom eptember sales: P*88,888 E %/8F G 18F&................................................... (88,888 !otal accounts receivable......................................................................................... P(68,888
Exercise 2 %ro!uction &u!'et#
udgeted sales in units +dd desired ending inventoryH !otal needs ess beginning inventory e"uired production
July $8,888 (,*88 $(,*88 $,888 $1,*88
August (*,888 -,888 *1,888 (,*88 (-,*88
Septembe r -8,888 *,888 -*,888 -,888 *6,888
Quarter 1$*,888 *,888 1(8,888 $,888 1$/,888
H 18F of the following month?s sales
Exercise 3 Materials %urchase &u!'et# Quarter – Year 2
15-5
Year 3
Chapter 15 Functional and Activity-Based Budgeting First -8,888 E $ 18,888
e"uired production of calculators Number of chips per calculator !otal production needs@chips
Production needs@chips +dd desired ending inventory@ chips !otal needs@chips ess beginning inventory@chips e"uired purchases@chips Cost of purchases at P2 per chip
Second 68,888 E $ 2/8,888
Tird 1*8,888 E $ (*8,888
First 18,888
Second 2/8,888
Year 2 Tird (*8,888
*(,888 2$(,888 $-,888 16,888 P$6-,888
68,888 $-8,888 *(,888 $8-,888 P-12,888
-8,888 *18,888 68,888 (28,888 P(8,888
Fourt 188,888 E $ $88,888
Fourt $88,888
First 8,888 E $ 2(8,888
Year 1,288,888
(,888 (,888 $(,888 1,2(,888 -8,888 $-,888 2,888 1,212,888 P*/-,888 P2,(2(,888
Exercise $ (irect )a*or &u!'et#
Requirement 1 +ssuming that the direct labor wor#force is adjusted each "uarter, the direct labor budget would be: Jnits to be produced Direct labor time per unit %hours&
1st 2nd 3rd !t Quarter Quarter Quarter Quarter *,888 (,(88 (,*88 (,688
Year 1,88
E !otal direct labor hours needed Direct labor cost per hour !otal direct labor cost
8.(8 E 8.(8 E 8.(8 E 8.(8 E 8.(8 2,888 1,/-8 1,88 1,6-8 /,*28 E P11.88 E P11.88 E P11.88 E P11.88 E P11.88 P 22,888 P 16,$-8 P 16,88 P 21,*-8 P 2,/28
Requirement 2 +ssuming that the direct labor wor#force is not adjusted each "uarter and that overtime wages are paid, the direct labor budget would be:
Jnits to be produced Direct labor time per unit %hours& !otal direct labor hour s needed egular hours paid 5vertime hours paid 'ages for regular hours %K P11.88 per hour& 5vertime wages %K P11.88 per hour E 1.*&
1st 2nd 3rd !t Quarter Quarter Quarter Quarter *,888 (,(88 (,*88 (,688
Year 1,88
E 8.(8
E 8.(8
E 8.(8
E 8.(8
E 8.(8
2,888 1,88 288
1,/-8 1,88 0
1,88 1,88 0
1,6-8 1,88 1-8
/,*28 /,288 $-8
P16,88
P16,88
P16,88
P16,88
P/6,288
2,-(8
*,6(8
$,$88
15-+
0
0
Functional and Activity-Based Budgeting Chapter 15 !otal direct labor cost
P2$,188
P16,88
P16,88
P22,((8
P*,1(8
Exercise 5 Manu"acturin' O,erhea! &u!'et#
Requirement 1 Li#o Corporation )anufacturing 5verhead udget
udgeted direct labor0hours 9ariable overhead rate 9ariable manufacturing overhead 3ied manufacturing overhead !otal manufacturing overhead ess depreciation Cash disbursements for manufacturing overhead
1 st Quarter *,888 P1./* P ,/*8 $*,888 ($,/*8 1*,888
2nd Quarter (,88 P1./* P ,(88 $*,888 ($,(88 1*,888
3rd Quarter *,288 P1./* P 6,188 $*,888 ((,188 1*,888
!t Quarter *,(88 P1./* P 6,(*8 $*,888 ((,(*8 1*,888
Year 28,(88 P1./* P $*,/88 1(8,888 1/*,/88 -8,888
P2,/*8
P2,(88
P26,188
P26,(*8
P11*,/88
Requirement 2 !otal budgeted manufacturing overhead for the year %a& !otal budgeted direct labor0hours for the year %b& Predetermined overhead rate for the year %a& M %b&
P1/*,/88 28,(88 P .-1
Exercise + Sellin' an! A!inistrati,e &u!'et# elene Company elling and +dministrative Apense udget
udgeted unit sales 9ariable selling and administrative epense per unit 9ariable epense 3ied selling and administrative epenses: +dvertising Aecutive salaries Insurance Property taes Depreciation !otal fied selling and administrative epenses
1st Quarter 12,888
2nd Quarter 1(,888
3rd Quarter 11,888
!t Quarter 18,888
Year (/,888
P2./* P$$,888
P2./* P $,*88
P2./* P $8,2*8
P2./* P 2/,*88
P2./* P126,2*8
12,888 (8,888
12,888 (8,888 -,888
12,888 (8,888
12,888 (8,888 -,888
1-,888
1-,888
-,888 1-,888
1-,888
(,888 1-8,888 12,888 -,888 -(,888
-,888
/(,888
/(,888
/(,888
268,888
15-.
Chapter 15 Functional and Activity-Based Budgeting !otal selling and administrative epenses ess depreciation Cash disbursements for selling and administrative epenses
181,888 1-,888
112,*88 1-,888
18(,2*8 1-,888
181,*88 1-,888
(16,2*8 -(,888
P *,888
P 6-,*88
P ,2*8
P *,*88
P$**,2*8
Exercise . Cash &u!'et Anal/sis#
Cash balance, beginning +dd collections from customers !otal cash available ess disbursements: Purchase of inventory 5perating epenses A"uipment purchases Dividends !otal disbursements Acess %deficiency& of cash available over disbursements
1 P 6 H /* H
68 6*
12* H 1$8
(8 H $18 H 2 H
* (2 2 118
H $H *( H H H H 2 H H 188
%$&H
3inancing: orrowings epayments %including interest& !otal financing Cash balance, ending
Quarter "### omitted$ 2 3 ! P * P * P *
8 P*
188 18* $2 H ( 18 2 H 62
Year P 6 $61 H (88 1-18 H $- H $68
%1*&
$8 H
1$
18
28 H
@
@
2
%2*& %2*& P *
%/&H %/& P -
%$2& %(& P -
8 28 P *
HBiven.
I9. Problems %ro*le 1 Sche!ule o" Expecte! Cash Collections an! (is*urseents#
Requirement 1 P /,(88 eptember cash sales............................................................................................... eptember collections on account: 7uly sales: P28,888 E 1F................................................................................... $,-88 +ugust sales: P$8,888 E /8F.............................................................................. 21,888 eptember sales: P(8,888 E 18F......................................................................... (,888 15-0
Functional and Activity-Based Budgeting Chapter 15
!otal cash collections............................................................................................... P$-,888 Requirement 2 Payments to suppliers: +ugust purchases %accounts payable&.................................................................. P1-,888 eptember purchases: P2*,888 E 28F................................................................. *,888 !otal cash payments................................................................................................ P21,888 Requirement 3 C55LIA P5DJC! Cash udget 3or the )onth of eptember P 6,888 Cash balance, eptember 1...................................................................................... +dd cash receipts: Collections from customers.................................................................................. $-,888 !otal cash available before current financing........................................................... (*,888 ess disbursements: Payments to suppliers for inventory..................................................................... P21,888 elling and administrative epenses..................................................................... 6,888 H A"uipment purchases........................................................................................... 1,888 Dividends paid..................................................................................................... $,888 !otal disbursements................................................................................................. *1,888 Acess %deficiency& of cash available over disbursements...................................................................................................... %-,888& 3inancing: orrowings.......................................................................................................... 11,888 epayments......................................................................................................... 8 Interest................................................................................................................. 8 !otal financing......................................................................................................... 11,888 P *,888 Cash balance, eptember $8.................................................................................... H P1$,888 P(,888 O P6,888. %ro*le 2 %ro!uction an! %urchases &u!'et#
Requirement 1 Production budget: July 15-
August
Septembe r
%ctober
Chapter 15 Functional and Activity-Based Budgeting
udgeted sales %units& +dd desired ending inventory !otal needs ess beginning inventory e"uired production
(8,888 28,888 -8,888 1/,888 ($,888
*8,888 2-,888 /-,888 28,888 *-,888
/8,888 1*,*88 *,*88 2-,888 *6,*88
$*,888 11,888 (-,888 1*,*88 $8,*88
Requirement 2 During 7uly and +ugust the company is building inventories in anticipation of pea# sales in eptember. !herefore, production eceeds sales during these months. In eptember and 5ctober inventories are being reduced in anticipation of a decrease in sales during the last months of the year. !herefore, production is less than sales during these months to cut bac# on inventory levels.
Requirement 3 aw materials purchases budget: e"uired production %units& )aterial P21( needed per unit Production needs %lbs.& +dd desired ending inventory %lbs.& !otal )aterial P21( needs ess beginning inventory %lbs.& )aterial P21( purchases %lbs.&
July ($,888 E $ lbs. 126,888 (,888 21$,888 -(,*88 1(,*88
August *-,888 E $ lbs. 1-,888 6,2*8 2*/,2*8 (,888 1/$,2*8
Septembe r *6,*88 E $ lbs. 1/,*88 (*,/*8 H 22(,2*8 6,2*8 1$*,888
Tird Quarter 1*,*88 E $ lbs. (/*,*88 (*,/*8 *21,2*8 -(,*88 (*-,/*8
H $8,*88 units %5ctober production& E $ lbs. per unitO 61,*88 lbs.; 61,*88 lbs. E 8.* O (*,/*8 lbs.
+s shown in re"uirement %1&, production is greatest in eptember. owever, as shown in the raw material purchases budget, the purchases of materials is greatest a month earlier because materials must be on hand to support the heavy production scheduled for eptember. %ro*le 3 Cash &u!'et Incoe Stateent &alance Sheet#
Requirement 1 chedule of cash receipts: 15-1
Functional and Activity-Based Budgeting Chapter 15
P -8,888 Cash sales@7une..................................................................................................... Collections on accounts receivable: )ay $1 balance................................................................................................... /2,888 7une %*8F E 168,888&........................................................................................ 6*,888 . !otal cash receipts................................................................................................... P22/,888 chedule of cash payments for purchases: P 68,888 )ay $1 accounts payable balance........................................................................... 7une purchases %(8F E 288,888&............................................................................. 8,888 !otal cash payments................................................................................................ P1/8,888
PIC!JA !I, INC. Cash udget 3or the )onth of 7une Cash balance, beginning.......................................................................................... P ,888 +dd receipts from customers %above&....................................................................... 22/,888 !otal cash available................................................................................................. 2$*,888 ess disbursements: Purchase of inventory %above&.............................................................................. 1/8,888 5perating epenses.............................................................................................. *1,888 Purchases of e"uipment....................................................................................... 6,888 !otal cash disbursements......................................................................................... 2$8,888 Acess of receipts over disbursements..................................................................... *,888 3inancing: orrowings@note................................................................................................ 1,888 epayments@note............................................................................................... %1*,888& Interest................................................................................................................. %*88& !otal financing......................................................................................................... 2,*88 Cash balance, ending............................................................................................... P /,*88 Requirement 2 PIC!JA !I, INC. udgeted Income tatement 3or the )onth of 7une ales........................................................................................................................ P2*8,888 Cost of goods sold: P $8,888 eginning inventory............................................................................................. 15-11
Chapter 15 Functional and Activity-Based Budgeting
+dd purchases..................................................................................................... 288,888 Boods available for sale....................................................................................... 2$8,888 Anding inventory.................................................................................................. (8,888 Cost of goods sold............................................................................................... 168,888 Bross margin........................................................................................................... -8,888 5perating epenses %P*1,888 G P2,888&.................................................................. *$,888 Net operating income............................................................................................... /,888 Interest epense....................................................................................................... *88 Net income.............................................................................................................. P -,*88 Requirement 3 PIC!JA !I, INC. udgeted alance heet 7une $8 Assets Cash........................................................................................................................ P /,*88 +ccounts receivable %*8F E 168,888&..................................................................... 6*,888 Inventory................................................................................................................ (8,888 . uildings and e"uipment, net of depreciation %P*88,888 G P6,888 P2,888&............................................................................ *8/,888 !otal assets.............................................................................................................. P-(6,*88 &iabilities and 'quity +ccounts payable %-8F E 288,888&........................................................................ P128,888 Note payable............................................................................................................ 1,888 hare capital............................................................................................................ (28,888 etained earnings %P*,888 G P-,*88&.................................................................... 61,*88 !otal liabilities and e"uity........................................................................................ P-(6,*88 %ro*le $ Sales4 %ro!uction an! Materials %urchases &u!'et#
Requirement 1 Ni##o )anufacturing Company ales udget 3or the year ending December $1, 288* (nits 1-,888 28,888 22,888 22,888 8,888
3irst "uarter econd "uarter !hird "uarter 3ourth "uarter !otal 15-12
Amount P (8,888 -88,888 --8,888 --8,888 P2,(88,888
Functional and Activity-Based Budgeting Chapter 15
Requirement 2 Ni##o )anufacturing Company tatement of Production e"uired 3or 288*
Jnits to be sold +dd: Desired ending inventory %28F& !otal units re"uired ess: eginning inventory Jnits to be produced
1st 1-,888 (,888 28,888 $,888 1/,888
Q u a r t e r 2nd 3rd 28,888 22,888 (,(88 (,(88 2(,(88 2-,(88 (,888 (,(88 28,(88 22,888
!t 22,888 *,888 2/,888 (,(88 22,-88
Total 8,888 *,888 *,888 $,888 2,888
Requirement 3 Ni##o )anufacturing Company tatement of aw )aterials Purchase e"uirements 3or 288*
Jnits re"uired for production +dd: Desired ending inventory !otal units ess: eginning inventory aw )aterials to be Purchased
1st *1,888 12,2(8 -$,2(8 12,*88 *8,/(8
Q u a r t e r 2nd 3rd -1,288 --,888 1$,288 1$,*-8 /(,(88 /6,*-8 12,2(8 1$,288 -2,1-8 --,$-8
!t Total -/,88 2(-,888 1*,888 1*,888 2,88 2-1,888 1$,*-8 12,*88 -6,2(8 2(,*88
%ro*le 5 Sche!ule o" Expecte! Cash Collections Cash &u!'et#
Requirement 1 chedule of epected cash collections:
3rom accounts receivable 3rom +pril sales: 28F E 288,888
April P1(1,888 (8,888 15-13
)ont )ay P /,288
June
Quarter P1(,288 (8,888
Chapter 15 Functional and Activity-Based Budgeting
/*F E 288,888 (F E 288,888 3rom )ay sales: 28F E $88,888 /*F E $88,888 3rom 7une sales: 28F E 2*8,888 !otal cash collections
1*8,888 P ,888
1*8,888 ,888
22*,888
-8,888 22*,888
*8,888 P11,888 P21/,288 P2$,888
*8,888 P-1,288
)ont )ay June P 2/,888 P 28,288
Quarter P 2-,888
-8,888
Requirement 2 Cash budget:
Cash balance, beginning +dd receipts: Collections from customers !otal available ess disbursements: )erchandise purchases Payroll ease payments +dvertising A"uipment purchases !otal disbursements Acess %deficiency& of receipts over disbursements 3inancing: orrowings epayments Interest !otal financing Cash balance, ending
April P 2-,888
11,888 28/,888
21/,288 2((,288
2$,888 $8$,288
-1,288 /8/,288
18,888 6,888 1*,888 /8,888 ,888 218,888
128,888 6,888 1*,888 8,888 @ 22(,888
18,888 ,888 1*,888 -8,888 @ 2-$,888
(8,888 2-,888 (*,888 218,888 ,888 -6/,888
%$,888&
28,288
(8,288
18,288
$8,888 @ @ $8,888 P 2/,888
15-1$
@ @ @ %$8,888& @ %1,288& @ %$1,288& P 28,288 P 6,888
$8,888 %$8,888& %1,288& %1,288& P 6,888
Functional and Activity-Based Budgeting Chapter 15
Requirement 3 If the company needs a minimum cash balance of P28,888 to start each month, the loan cannot be repaid in full by 7une $8. If the loan is repaid in full, the cash balance will drop to only P6,888 on 7une $8, as shown above. ome portion of the loan balance will have to be carried over to 7uly, at which time the cash inflow should be sufficient to complete repayment. %ro*le + lexi*le &u!'et# ummer )achine Company 3leible 5verhead udget Department 1
)achine ours 9ariable 5verhead 3ied 5verhead !otal
1##+ 288,888 P1,$88,888 $88,888 P1,-88,888
,#+ 18,888 P1,1/8,888 $88,888 P1,(/8,888
)anufacturing 5verhead rate per machine hour
*apacity -#+ 1-8,888 P1,8(8,888 $88,888 P1,$(8,888
.#+ 1(8,888 P 618,888 $88,888 P1,218,888
/#+ 128,888 P /8,888 $88,888 P1,88,888
.#+ 1(8,888 28,888 P 68,888 *88,888 P1,(8,888
/#+ 128,888 2(8,888 P (8,888 *88,888 P1,$(8,888
P.88
ummer )achine Company 3leible 5verhead udget Department 2
Direct abor ours )achine ours 9ariable 5verhead 3ied 5verhead !otal
1##+ 288,888 (88,888 P1,(88,888 *88,888 P1,688,888
,#+ 18,888 $-8,888 P1,2-8,888 *88,888 P1,/-8,888
)anufacturing 5verhead rate per machine hour
*apacity -#+ 1-8,888 $28,888 P1,128,888 *88,888 P1,-28,888
P(./*
%ro*le . Cash &u!'et 6ith Supportin' Sche!ules# 15-15
Chapter 15 Functional and Activity-Based Budgeting
1. Collections on sales:
July
August
Sept0
Quarter
Cash sales............................................... P ,888 ...... P1(,888 P18,888 P $2,888 Credit sales: )ay: P$8,888 E 8F E 28F..................... (,88
(,88
7une: P$-,888 E 8F E /8F, 28F....................................................... 28,1-8
*,/-8
2*,628
7uly: P(8,888 E 8F E 18F, /8F, 28F.............................................. $,288
22,(88
-,(88
$2,888
*,-88
$6,288
((,88
(,888
(,888
+ug.: P/8,888 E 8F E 18F, /8F....................................................... ept.: P*8,888 E 8F E 18F....................
!otal cash collections.................................... P$-,1-8 P(/,/-8 P*6,-88 P1($,*28 2. a. )erchandise purchases budget: July
August
Sept0
%ct0
udgeted cost of goods sold.......................... P2(,888
P(2,888
P$8,888
P2/,888
+dd desired ending inventoryH....................... $1,*88
22,*88
28,2*8
!otal needs.................................................... **,*88
-(,*88
*8,2*8
ess beginning inventory............................... 1,888
$1,*88
22,*88
e"uired inventory purchases.............. .......... P$/,*88
P$$,888
P2/,/*8
H/*F of the net month?s budgeted cost of goods sold. b. chedule of epected cash disbursements for merchandise purchases: July
August
Sept0
+ccounts payable, 7une $8............................ P11,/88 7uly purchases............................................... 1,/*8 +ugust purchases..........................................
P11,/88 P1,/*8 1-,*88
eptember purchases..................................... !otal cash disbursements............................... P$8,(*8
15-1+
Quarter
P$*,2*8
$/,*88 P1-,*88
$$,888
1$,/*
1$,/*
P$8,$/* P6-,8/*
Functional and Activity-Based Budgeting Chapter 15
$.
7u Products, Inc. Cash udget 3or the uarter Anded eptember $8 July
August
Sept0
Quarter
Cash balance, beginning............................. P ,888 P ,(18 P ,828
P ,888
+dd collections from sales.............. ............ $-,1-8
(/,/-8
*6,-88
1($,*28
!otal cash available................................ ((,1-8
*-,1/8
-/,-28
1*1,*28
3or inventory purchases......................... $8,(*8
$*,2*8
$8,$/*
6-,8/*
3or selling epenses............................... /,288
11,/88
,*88
2/,(88
3or administrative epenses................... $,-88
*,288
(,188
12,688
3or land.................................................. (,*88
8
8
(,*88
3or dividends..........................................8
8
1,888
1,888
!otal disbursements.................................... (*,/*8
*2,1*8
($,6/*
1(1,/*
(,828
2$,-(*
6,-(*
ess disbursements:
Acess %deficiency& of cash available over disbursements........... %1,*68& ....... 3inancing: orrowings............................................. 18,888
(,888
1(,888
epayment............................................. 8
8
%1(,888&
%1(,888&
Interest...................................................8
8
%$8&
%$8&
!otal financing........................................... 18,888
(,888
%1(,$8&
%$8&
Cash balance, ending.................................. P ,(18 P ,828 P 6,2-* H P18,888 E 1F E $ O
P$88
P(,888 E 1F E 2 O
8 P$8
9. Multiple Choice Questions
15-1.
P 6,2-*
Chapter 15 Functional and Activity-Based Budgeting
1. 2. $. (. *. -. /. . 6. 18.
C A C C D C + D
11. 12. 1$. 1(. 1*. 1-. 1/. 1. 16. 28.
C C D C + A
21. 22. 2$. 2(. 2*. 2-. 2/. 2. 26. $8.
C C D C C C D + C D
Supporting computations uestions 1- to 28:
Cost of sales +dd: Desired )inimum Inventory !otal ess: eginning Inventory %1,(88,888 8.$& 1.# Bross Purchases 1+# ess: Cash discount Net cost of purchases Payments of Purchases -8F 0 month of purchase (8F 0 following month !otal
January P1,(88,888 (62,888 1,62,888 $24 14$.24 1(,/28 P1,(*/,28
February P1,-(8,888 (*-,888 2,86-,888 (62,888 1,-8(,888 1-,8(8 P1,*/,6-8
P/(,$-
P 6*2,//*2,612 %145354+00
10#
1#
ross Current month?s sales %with discount& $*F Current month?s sales %without discount& 1*F Previous month?s sales %with discount& (.*F Previous month?s sales %without discount& (8.*F
February *as iscount
4et
P*6*,888
P11,688
P*$,188
2**,888
8
2**,888
-/,*88
1,$*8
--,1*8
-8/,*88
15-10
-8/,*88
Functional and Activity-Based Budgeting Chapter 15
P1,*2*,888
P1$,2*8
2#!otal Collections in 3ebruary +dd: Cash sales !otal
P1,*11,/*8 P1,*11,/*8 $*8,888 %140+14.5
21#Astimated cash receipts Collections from customers Proceeds from issuance of common stoc# Proceeds from short0term borrowing !otal ess: Astimated cash disbursements 3or cost and epenses 3or income taes Purchase of fied asset Payment on short0term borrowings !otal Cash balance, Dec. $1 22# Net income +dd: Depreciation 'or#ing capital provided from operations +dd: Increase in income taes payable Increase in provision for doubtful accounts receivable !otal ess: Increase in accounts receivable Decrease in accounts payable Increase in cash
P1,$*8,888 *88,888 188,888 P1,6*8,888 P1,288,888 68,888 (88,888 *8,888 1,/(8,888 % 214
P128,888 -*,888 P1*,888 P 8,888 (*,888 P $*,888 2*,888
12*,888 P$18,888 -8,888 %254
23#Cash eceipts for 3ebruary 288* 3rom 3ebruary sales %-8F 118,888& 3rom 7anuary sales !otal
P --,888 $,888 P18(,888
2$#Pro0forma Income tatement, 3ebruary 288* ales Cost of sales %/*F& Bross profit
P118,888 2,*88 P 2/,*88
ess:
5perating epenses Depreciation 15-1
1-,*88 *,888
Chapter 15 Functional and Activity-Based Budgeting
ad debts Net operating income
2,288
2$,/88 % 340
25#+ccounts Payable on 3ebruary 2, 288* will be the unpaid purchases in 3ebruary 0 %/*F P128,888& O %4.
uestions 2- to 26: Net sales ess: Cost of sales 3inished goods inventory, 7an. 1 +dd: Cost of goods manufactured %ch. I& !otal available for sale ess: 3inished goods inventory, Dec. $1 Bross Profit ess: 5perating and financial epenses elling +dministrative 3inance Net income before taes H
P2,888,888 P $*8,888 1,$*8,888 H P1,/88,888 (88,888 1,$88,888 2+# P /88,888 P $88,888 18,888 28,888
*88,888 P 288,888
Determined by wor#ing bac# from net income to sales.
Sche!ule I
aw materials used aw materials inventory, 7an. 1 +dd: Purchases !otal available ess: aw materials inventory, Dec. $1 aw materials used Direct labor )anufacturing overhead !otal )anufacturing Cost +dd: 'or#0in0process inventory, 7an. 1 !otal P1,-/8,888 ess: 'or#0in0process inventory, Dec. $1 Cost of goods manufactured
P 2*8,888 (61,888 2# /(1,888 $88,888 P ((1,888 *,888 ((1,888 20# P1,(/8,888 2.# 288,888 $28,888 P1,$*8,888
3#9ariable factory overhead
P1*8,888 (,888
P$.12* 15-2
Functional and Activity-Based Budgeting Chapter 15
3ied factory overhead P2(8,888 (,888
*.888
!otal factory overhead
%07125
15-21
